Featured Product

    PRA Publishes CP13/18 on Equity Release Mortgages Under Solvency II

    July 02, 2018

    PRA published the consultation paper (CP13/18) that sets out additional PRA expectations from firms investing in equity release mortgage (ERM) portfolios, as set out in Chapter 3 of the supervisory statement SS3/17. The PRA expectations from firms investing in illiquid, unrated assets within their Solvency II matching adjustment portfolios have been set out in SS3/17. PRA also published a letter from David Rule, its Executive Director of Insurance Supervision, which highlights certain key points related to the consultation. The consultation closes on September 30, 2018 and its proposed implementation date is December 31, 2018.

    CP13/18 proposes to update SS3/17, with the aim to provide greater clarity to firms on the expectations for how they should ensure that the matching adjustment claimed on restructured ERMs is not overstated. The proposals aim to ensure that, where firms have invested in ERMs and have approval to use the matching adjustment or transitional measure on technical provisions, their technical provisions are not understated and that their Solvency II and ICAS balance sheets include appropriate allowance for the risks to which they are (directly or indirectly) exposed. CP13/18 is relevant to insurance and reinsurance companies holding ERMs. The proposals included in CP13/18 are as follows:

    • Firms using the approach and minimum calibration proposed would meet the PRA expectations for assessing the allowance for no negative equity guarantee (NNEG) risk for the  Effective Value Test (EVT).
    • Firms holding ERMs should include an explicit allowance for other risks within the EVT.
    • Where firms holding restructured ERMs in their matching adjustment portfolio cannot meet the EVT, this suggests that they may be taking an inappropriately large matching adjustment benefit. Thus, they will need to review their current approach and consider making changes to the structure, valuation, or rating of restructured ERMs to ensure that they are able to calculate their matching adjustment benefit consistently with Solvency II requirements
    • Firms holding ERMs that benefit from the transitional measure on technical provisions should adopt the same approach to an assessment of NNEG and other risks for their ICAS technical provision calculations as they do for Solvency II technical provision calculations for the purpose of calculating transitional measure on technical provisions to ensure consistency between the calculation bases
    • Firms should consider whether they need to revise their internal models in response to any of the above changes


    Related Links

    Comment Due Date: September 30, 2018

    Effective Date: December 31, 2018

    Keywords: Europe, UK, Insurance, Solvency II, Equity Release Mortgage, CP13/18, SS3/17, Matching Adjustment, PRA

    Featured Experts
    Related Articles
    News

    EU Amends IFRS 9 Rule, Changes Concern Interest Rate Benchmark Reforms

    EU published Regulation 2020/34 regarding the International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9.

    January 16, 2020 WebPage Regulatory News
    News

    FDIC and OCC Issue Statement on Heightened Cyber Security Risk

    In response to the heightened cyber-security risk facing the financial services industry and other critical business sectors, FDIC and OCC issued an interagency statement on heightened cyber-security risk.

    January 16, 2020 WebPage Regulatory News
    News

    BoE and FCA Outline Next Steps for LIBOR Transition in 2020

    BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published a set of documents that outline the LIBOR transition priorities and milestones for 2020.

    January 16, 2020 WebPage Regulatory News
    News

    BCRA Updates Regulation on Capital Requirements and Information Regime

    BCRA updated the rules on minimum capital requirements for financial entities and on certain aspects of the information transparency regime for quarterly and annual supervision.

    January 16, 2020 WebPage Regulatory News
    News

    BIS to Expand Central Bank Membership

    BIS is to expand its central bank membership base and to increase collaboration in its work as a forum for international cooperation and as a hub for central banks and other financial authorities.

    January 14, 2020 WebPage Regulatory News
    News

    EIOPA Issues Technical Specifications for Market and Credit Risk Study

    EIOPA published the technical specifications, including instructions, for the market and credit risk modeling comparative study for year-end 2019.

    January 13, 2020 WebPage Regulatory News
    News

    FED Publishes FAQs on Tailoring Rules for Banks

    FED released a letter announcing the publication of an initial set of frequently asked questions (FAQs) in response to questions from institutions.

    January 13, 2020 WebPage Regulatory News
    News

    IA of Hong Kong Publishes Stress Testing Scenarios in Relation to ORSA

    IA of Hong Kong published the prescribed scenarios for stress and scenario testing to be used by the authorized insurers conducting general insurance business.

    January 13, 2020 WebPage Regulatory News
    News

    FDIC Letter on Submission of Call Reports by End of January 2020

    FDIC, in a letter to financial institutions, announced that the Consolidated Reports of Condition and Income (Call Reports) for the December 31, 2019 report date must be submitted to the Central Data Repository of the relevant US agencies by January 30, 2020.

    January 13, 2020 WebPage Regulatory News
    News

    EBA Consults on Calculation of Own Funds Requirements for Market Risk

    EBA is consulting on the draft regulatory technical standards for calculation of the own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.

    January 13, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4489